We model green markets in which purchasers, either firms or
consumers, have higher willingness-to-pay for less
polluting goods. The effectiveness of pollution reduction
policies is examined in a duopoly setting. We show that
duopolists' strategic behaviour may increase pollution
levels. Maximum emission standards, commonly used in green
markets, improve the environmental features of products.
Nonetheless, overall pollution levels will rise because
government regulation also affects market shares and boots
firms' sales. Consequently, social welfare may be reduced.
We also explore the effects of technological subsidies and
product charges, including differentiation of charges.